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James Craven

On Tuesday, the Fifth Circuit issued its decision in Austin v. City of Pasadena, which correctly reversed a grant of qualified immunity to police officers who responded to a detainee’s epileptic seizure by repeatedly tasing him, thereby allowing a case where a man died in custody to proceed to trial. Although the court’s decision was encouraging and commendable, the facts of the case paint a stark picture of the police culture that has grown out of qualified immunity’s long shadow.

In 2019, Jamal Ali Shaw was arrested by Pasadena police on suspicion of public intoxication and taken to a local jail, where he was placed in detention Cell H. Four hours later, Shaw suffered an epileptic seizure and collapsed to the floor.

Other detainees in Cell H alerted the staff about Shaw’s condition, prompting Officer Joanna Marroquin to call for emergency medical services at 6:16 a.m.. Marroquin and Officer Ryan Whitehead then entered the cell and removed all detainees except Shaw. Video footage revealed Shaw convulsing and foaming at the mouth.

For approximately three minutes, Whitehead and Marroquin attempted to restrain Shaw’s movements, seemingly trying to pin him down. Marroquin then stepped back and used her Taser repeatedly in “drive‐​stun” mode on Shaw’s left side and leg. Shaw rolled away from the officers towards the toilet area and managed to get up. Another officer entered the cell, and Shaw approached Whitehead. Whitehead tasered Shaw in the chest, causing him to fall face‐​first onto the concrete floor. Then a fourth officer arrived and joined the others in attempting to “restrain” Shaw.

The EMTs arrived at 6:26 a.m. but were denied entry to the cell. Their request to transport Shaw on a gurney was dismissed, and the four officers continued trying to subdue Shaw. Shaw fell over, and the EMTs again offered to place him on a stretcher. They were again rebuffed.

At 6:28 a.m., the officers locked Shaw into a restraint chair and transported him to the booking area. Shaw screamed for help. Officials attempted to question Shaw despite his apparent unresponsiveness. Shaw called out for his mother, who had brought his epilepsy medication to the jail in the past. The officers kept Shaw in the chair for approximately 17 minutes.

Finally, the officers assented to handing Shaw over to the EMTs. He was moved to a gurney, handcuffed again, and placed in an ambulance. As the ambulance departed at 6:57 a.m., Shaw experienced cardiac arrest. He died the following day.

In deciding if a lawsuit holding police liable for Shaw’s death could proceed, the Fifth Circuit began with the same inquiry used in most summary judgment proceedings: a review of whether a reasonable jury could find that officers deployed excessive force or delayed emergency medical care. It recognized correctly that there were several junctures in this tragic incident where a reasonable person, conscious of their potential liability if not their own moral principles, would have avoided the sort of actions officers took here.

To begin with, physical restraint is an unconventional initial response to someone experiencing what has already been identified as an epileptic seizure. Tasering a detained individual in the midst of an epileptic seizure is not only unnecessary for safety but also highly unlikely to improve that individual’s well-being—especially if the Taser is deployed while the person is standing and there are no measures in place to prevent their head from hitting the concrete. Denying the assistance of EMTs, in order to place a person undergoing an epileptic seizure in a restraint chair, strays so far from any reasonable notion of aid or safety that it is difficult to comprehend the officers’ rationale.

This is how officer accountability should operate: if a reasonable jury could not possibly conclude that an officer’s behavior was unreasonable, the case should be thrown out to save the court’s resources and the officers’ time. But in cases like this one, where reasonable individuals could conclude that the officers acted unreasonably—even from the officers’ heat‐​of‐​the‐​moment perspective—the case should proceed to trial.

But it is highly unlikely that the unreasonable acts of these four Pasadena officers were simply irrational. Their reckless disregard for Jamal Ali Shaw’s well‐​being was likely due in part to a belief that, as police officers, they would not be held liable for their actions.

This belief is not unfounded. The doctrine of qualified immunity has repeatedly shielded police officers from liability for flatly unconstitutional behavior. It does this by burdening the court’s typical summary judgment assessment about whether a jury could find an officer’s conduct unconstitutional with an additional, unrelated, and arbitrary inquiry.

That second inquiry is the far less sensible “clearly established law” standard of qualified immunity, which paradoxically lacks clarity. Usually, it means that plaintiffs seeking relief must find a factually similar case in the same jurisdiction where another plaintiff was harmed by public officials in almost identical circumstances.

Few people would agree that a police officer shouldn’t even be brought to trial because they were the first officer in their jurisdiction to violate someone’s constitutional rights in a very particular way. And officers never learn this body of case law about what has and hasn’t been held to be unconstitutional misconduct. So it’s likely that the officers in this case had no idea that its haunting similarities to the police encounter that resulted in the death of Tony Timpa would make them vulnerable to a lawsuit. But qualified immunity demands proof of just such a horrible déjà vu in order for any lawsuit against a police officer to go forward. It’s a strange silver lining for the Shaw family that a similar tragedy had already occurred, clearing the way for them to seek compensation for Shaw’s death.

The Fifth Circuit laudably decided that Shaw’s family should be allowed to take their case against these officers to trial. It’s just unfortunate that that decision couldn’t start and end with their thoughtful discussion about the many points where a reasonable juror could find that, even without the benefit of hindsight, the officers were clearly acting unreasonably. Instead, the outcome was contingent on the pure happenstance of there being enough factually‐​analogous case law to satisfy qualified immunity’s “clearly established law” standard.

Congress should eliminate the “clearly established law” standard, which encourages reckless police behavior by creating a culture of unaccountability that disincentivizes officers from thinking rationally about the consequences of their actions. While the thoughtless conduct of these Pasadena officers would not find sympathy among the majority of our nation’s police force, they all bear the burden of the damage caused to their reputation by recurring instances of police misconduct. During a time when police recruitment is challenging, it is more important than ever to take steps to rebuild confidence in the institution of policing and make it a profession that officers can once again take pride in holding.

Walter Olson

A widely noted new draft paper by two political scientists, Justin Grimmer of Stanford and Eitan Hersh of Tufts, surveys existing research and reaches a conclusion consistent with what I’ve argued for some time: for all the talk of democracy hanging in the balance from “voter suppression” and the like, “nearly all contemporary election laws have small effects on partisan election outcomes.” That goes for (to name a few) the availability of mail and lockbox voting as an alternative to in‐​person Election Day voting, voter registration through motor vehicles offices, and the dropping of inactive voters from registration rolls. An excerpt from the paper’s abstract:

Contemporary election reforms that are purported to increase or decrease turnout tend to have negligible effects on election outcomes. We offer an analytical framework to explain why. Contrary to heated political rhetoric, election policies have small effects on outcomes because they tend to target small shares of the electorate, have a small effect on turnout, and/​or affect voters who are relatively balanced in their partisanship.…

The caustic rhetoric that suggests the partisan stakes for election administration reform are very high is detached from empirical reality. Even very close elections are decided by margins larger than the magnitude of election reforms we examine in this paper. Further, the party that benefits from changes is often unclear. In all but the absolute closest elections, modest electoral reforms cannot affect partisan outcomes.

Here’s what I wrote for Cato a year and a half ago, after noting that for all the fuss about voter ID laws, there is no evidence they in fact affect registration, turnout, or election outcomes:

As it happens, a lot of claims commonly made about voter suppression on the one hand and ballot integrity on the other are surprisingly hard to validate. Some of the states with the most restrictive rules, for example, are also known for having some of the highest voter turnouts. Early, absentee, and by‐​mail voting affect when and how Americans vote, but there’s much less evidence that they make a big difference in who decides to vote or which side wins.

In the 2020 election, following years of claims of mounting voter suppression, voter turnout soared to a level not previously seen in modern times.

The election reforms that most often stir controversy, Grimmer and Hersh write, tend not to change partisan balance much because they “target narrow shares of the population, have a small effect on turnout, and/​or are imprecisely targeted at members of political parties.” They take up various hotly contested current voting reforms and find that they do not detectably influence partisan outcomes. For example, Arizona’s controversial practice of not counting ballots cast out of precinct drew a Voting Rights Act challenge that went to the Supreme Court in Brnovich v. DNC, but in fact the group of voters affected varied little by race from that of the state electorate overall.

Contrary to widespread assumptions, they find that re‐​enfranchisement of felons who have served their terms would not provide a big boost for Democrats, in part because relatively few felons take advantage of the restored franchise and in part because many who do vote Republican. (In fact, they project that Republicans would actually stand to gain more votes than Democrats in 19 states, Arizona among them, if felons got re‐​enfranchised coast to coast.)

That ties in with another point that bears emphasis: many old ideas about who votes for which party are no longer useful. “Voter suppression” narratives often rest on the notion that poorer and less educated voters will be differentially discouraged by some requirement. Nowadays, however—if not 40 years ago—those groups overall may lean Republican.

Grimmer and Hersh go on to offer evidence against the sometimes‐​made argument that the lack of effects on outcomes is the result of counter‐​mobilization fueled by opponents’ outrage. They do identify one policy choice that seems to have real and substantial effects on partisan outcomes, namely the decision whether to hold municipal elections on or off the federal cycle, which can result (among other effects) in helping nationalize the politics of local races. Ironically, that particular reform has been the subject of hardly any national partisan controversy.

In short, Grimmer and Hersh’s paper undercuts much of the received opinion about “voter suppression.” They summarize their findings: “compared to dire warnings and predictions in the public square, scholars have found only modest relationships between these laws and election participation and no consistent relationship between ‘suppression’ laws and partisan outcomes.”

And they go on to draw two excellent conclusions, which I heartily second. First, a clear implication should be “to lower the temperature [yes!] on election administration policies.…the media should not portray every change in an election law as a red‐​alert scenario that will determine future elections.” I’ve argued that the most serious challenge to democratic norms is likely instead to come from a different direction, namely from some groups’ refusal to accept as legitimate the outcomes of elections held in ordinary and regular form.

Their second point is also on target: a turn away from the relentless search for partisan advantage should not mean setting aside these issues of election procedure as unimportant. It should instead mean seeking to resolve them on their merits. Getting election procedure right can have major benefits for administrative efficiency, voter convenience, detection of bad practices, speed of tabulation, and the restoring of public confidence in outcomes, to name only a few of its legitimate goals. Let’s get on with it.

Colleen Hroncich

In the United States today, the word “liberal” is often linked to Democrats and others on the political left who favor using government to implement social change. But the word actually comes from the Latin root liber, which means free. And that is at the heart of the Institute for Catholic Liberal Education (ICLE), which was founded in 1999. ICLE’s mission is to renew Catholic schools “by drawing on the Church’s tradition of education, which frees teachers and students for the joyful pursuit of faith, wisdom, and virtue.”

According to the Institute, most modern schools are based on a pragmatic, utilitarian, secular philosophy that is fragmented and focused on skills, job training, and standardized tests. A Catholic classical liberal arts education, on the other hand, emphasizes wisdom, independent thought, and discovery while focusing on the whole child created in the image of God.

ICLE provides a number of resources for schools that want to adopt the Catholic classical educational philosophy. For schools that are considering this path, ICLE offers presentations for parents, clergy, and boards as well as training for teachers and school leaders. There are also conferences, workshops on various topics, publications, and site visits.

New this year after a pilot program in Denver, ICLE is launching a Catholic Educator Formation and Credential (CEFC) program. This 18‐​month program, delivered online and in‐​person, is designed to be an alternative to state licensure that can be used by Catholic dioceses across the nation.

Emily Zgonc is the principal at St. Michael School, a Catholic school in western Pennsylvania that was founded in 1899. This year, the school is embarking on a new ICLE partnership that Emily is very excited about. “ICLE has been working with Catholic schools across the United States to support a refreshing renewal of Catholic education,” she explains.

“We’re going back to our roots of what made Catholic education so effective and vibrant: the importance of story and wonder. Our students will be reading great stories that they can delve deeply into, befriending and learning life lessons from the characters. Instead of bland ‘social studies,’ our students will learn the history of western civilization and where they fit in that story. Going beyond a typical science class, we’re going to incorporate nature studies so our students can ‘get their hands dirty’ and dig into what they are learning about, awakening a sense of wonder and leading to deep questions. Our newly revamped curriculum will help our students grow to become intelligent, curious, and engaging adults.”

St. Michael School is not alone. Interest in classical education, including ICLE, has exploded in recent years. Earlier this week, ICLE hosted its national conference at Duquesne University in Pittsburgh. While the Institute expanded conference capacity by 25 percent compared to last year, the event still sold out quicker than in the past.

I attended the ICLE conference to participate on a panel about school choice and Catholic schools. One of the topics I discussed was how the government largely monopolized education in the late 1800s and early 1900s, which crowded out many other models. School choice policies, like tax credit scholarships, education savings accounts, and vouchers, are helping to correct that problem. As interest grows in education options beyond local district schools—including interest in classical Catholic schools like ICLE partners—the expansion of school choice programs will help families access these options.

Scott Lincicome

We often discuss how “Buy America” laws increase federal project costs by requiring pricier American‐​made materials, but from tiny Brookport, Illinois comes a humorous/​sad reminder that the protectionist law costs time and taxpayer money even when it’s waived:

Brookport City Council approved an increase in the bid for the sewer project of $51,274.50 to Mid West Petroleum during its monthly meeting on Tuesday, July 11.

While the engineers were waiting for a waiver of the Build America, Buy America Act in Washington D.C., parts for the international pumps had increased in cost. The pumps chosen as the best equipment for the city’s needs are not manufactured in the U.S., so a waiver was needed. The total awarded amount is now $1,760,424.50.

The approved construction loan for the sewer project passed last month was amended to add $714,000 because of construction overruns.

For more on Buy America laws (and why they should be repealed), check out my recent column on the subject.

Ryan Bourne

Extensive media coverage of the idea of “greedflation” seems to be affecting public opinion. A new YouGov polling survey undertaken in June 2023 finds that more Americans blame inflation on “large corporations seeking maximum profits” than any other option they are given. 

A massive 61 percent of U.S. adults think profit‐​hunting corporations deserve “a lot” of blame for inflation, up from 52 percent in 2022 (see chart below). For context: this exceeds the number who blame spending by the federal government, the price of foreign oil, the war in Ukraine, or the level of consumer demand. Independents saw the biggest swing towards this profits‐​led inflation explanation, which surely reflects the disproportionate broadcast and print media coverage of a “heterodox” theory that academic economists regard as kooky.

When the last version of this YouGov survey was undertaken in October 2022, I was harshly critical of it. The questions seem almost designed to confuse the public about what inflation is. Ask most mainstream economists and they will say that, to a first approximation, inflation is a macroeconomic phenomenon driven by too much money chasing too few goods. These days they might talk in terms of aggregate demand and aggregate supply instead, to be more general. And yet, when offering up a menu of boogeymen to blame, YouGov doesn’t even list “the Federal Reserve” for censure. This, despite the Fed’s inflation mandate and the fact that macroeconomists see the Fed as the key institution affecting aggregate demand.

Effectively omitting low interest rates, quantitative easing, or an increased money supply as explanations for inflation, all that’s really left is government spending, supply‐​shocks from overseas, and various quack theories or partisan flexes. Little surprise then that when asked what government policies they believe would reduce inflation, the public’s modal choices include “increasing domestic oil production,” “investing in strengthening the supply chain [sic],” “having the government enforce limits on price increases,” and “fining companies for price gouging.” 

The increase in the perceived effectiveness of price controls is the most striking and worrying. Fifty‐​one percent of respondents now think that “having the government enforce limits on price increases would “probably or definitely decrease inflation” compared to 44 percent from those surveyed last October. This, despite the long, inglorious history of price controls as a failed means of controlling inflation. 

The greedflation story, as popularized by Senator Elizabeth Warren, clearly makes little sense. Companies didn’t suddenly get more greedy in 2021 and 2022, and then less so of late. There’s no reason to think there were massive changes in market power that led firms to suddenly be able to increase the level of prices either. And the idea that inflation allowed firms across different industries to suddenly tacitly collude to all raise prices simultaneously far beyond their cost uplifts ignores an inconvenient fact: consumers still need to be willing and able to pay the higher prices. This is only possible in a world where there’s more money for them to demand the products, begging the question: was too much aggregate demand the ultimate driving factor? 

Overall, this polling is profoundly depressing. Inflation isn’t seen by the public as a macroeconomic phenomenon that requires different macroeconomic policies to avoid or mitigate. Looking at the answers in the round, it’s clear that the public instead interprets “inflation” as synonymous with “the cost of living.” Hence any policy that those surveyed think will reduce their living costs—whether holding down certain prices, cutting interest rates, making more oil available, or cutting taxes—is seen by more people as likely to reduce inflation rather than increase it.

Joshua A. Katz

Citizens should be able to assert their rights over governmental opposition. One way they do so is by amending their state constitutions by initiative, where permitted. But courts sometimes stretch sensible legal requirements in ways that insulate the government from this sort of interference. One of the rules that can be stretched in this way is the single‐​subject rule, at issue here.

This case arises from the Attorney General’s seeking an advisory opinion on whether a recreational marijuana initiative, which has met the petitioning requirement for the ballot, may lawfully be put on the ballot. One of the briefs in opposition to the initiative, that of the Florida Chamber of Commerce, challenges it under the single‐​subject rule, maintaining that it violates the rule because it both decriminalizes marijuana and “commercializes” it. By the latter, the Chamber means it allows for its commercial sale in existing medical marijuana dispensaries, among other things.

Initiatives are particularly important for addressing mismatches between rights the people seek and what their representatives deign to allow, as this case illustrates. Those mismatches can have many sources; an important one arises when a statewide majority is represented by a legislative minority, either because of districting or for other reasons. Minority rule resulting from apportionment rules was a driving force behind the 1968 revision of the Florida Constitution, the revision that permitted constitutional amendment by initiative. When there is such a mismatch, and an initiative is used to overcome it, the people cannot rely on the government to adopt implementing rules. So the amendment itself must contain rules making it effective, rather than waiting for statutes, regulations, funding sources, licensure rules, and so on, to emerge from the political branches. But that runs the risk of those provisions being labeled a second subject.

Our brief responds to the Chamber’s in, principally, two ways. First, the proper judicial approach to the rule is one of moderation and pragmatism, and the Supreme Court of Florida should adopt such an approach. The court is, after all, standing between the people and a document they themselves established and reserved to themselves the right to amend, and that in turn establishes the state government. This reading is consistent with the history of the citizen initiative.

While Florida’s Supreme Court has enforced the single‐​subject rule more strictly against initiatives than against the state’s legislature (subject to its own rule), the proper approach would be the inverse. In the legislature, the rule addresses logrolling and riders, two ways representatives might fail in their duty to represent their constituents. These are less concerning for initiatives, where the voters do not answer to a constituency, riders are less troublesome, and logrolling is more difficult.

Second, even under Florida’s existing jurisprudence, the “commercialization” here does not change the subject. It is an effort to head off governmental opposition. Opposition is reasonable to expect as many recreational marijuana bills have died in the legislature. So the initiative includes what the Chamber calls “commercialization” provisions, which ensure that a means of distribution is available and that some dispensaries (those currently dispensing medical marijuana) are immediately licensed. If that makes for a single‐​subject violation, then the government, contrary to design, will always have a veto over such amendments, sapping them of their power to overcome governmental hostility.

Initiatives to amend the state constitution, which reflect greater trust in the people than in politicians, are a tool for checking the government. Courts should use great care in keeping them off the ballot. Because they often overcome governmental hostility, indeed, that is a core purpose, they often need to contain detailed rules for their implementation, because otherwise government will frustrate their purposes. So implementing rules, in particular, is not a second subject for the purposes of this rule. When citizens speak, the government should listen.

Chris Edwards

The next president will face a huge federal budget mess. Spending is driving up debt to unprecedented levels and is pushing federal intrusion ever deeper into state, local, and private affairs.

The most important question we should ask of 2024 presidential candidates is will they cut spending? Will they use their bully pulpit and budgeting powers to push Congress to cut?

The next president must be a dedicated spending cutter. Numerous candidates for the White House have track records on spending as governors. The table below includes governors who are in the race and some governors who are possible candidates.

The table shows general fund spending, which is the part of state budgets that governors have the most control over. The table shows spending for the first and last fiscal years each governor was in office. For governors still in office, the last year is their proposed spending for 2024. The table shows the annual average percent change in spending, and the change on a per‐​capita basis because state population growth rates differ.

By these metrics, the most frugal governors have been Asa Hutchinson, Mike Pence, Kim Reynolds, Chris Sununu, Chris Christie, and Doug Burgum, while the least frugal has been Gavin Newsom, Ron DeSantis, Gretchen Whitmer, and Nikki Haley.

Some caveats are discussed below. Also, broader fiscal assessments of these governors are available in Cato’s fiscal report cards.

Notes and Caveats

The spending data is from NASBO fiscal reports. The most recent report includes 2022, 2023, and 2024. For prior years, I used the final “actual” figures from previous editions.
General fund spending growth is just one measure of a governor’s fiscal performance.
Governors share fiscal powers with state legislatures, which may or may not be controlled by the same party.
The recent high inflation may have increased averages for current governors, although some current governors, such as Kim Reynolds, have nonetheless held spending down.
California’s per‐​capita spending increased more than total spending because the state’s population is shrinking.
I used Census actual state populations up until 2022, and then estimated 2023 and 2024 based on the growth in 2022.
Broader discussions of these governors and their fiscal policies are in Cato report cards.

Romina Boccia

U.S. government spending is growing at a faster pace than the ability of taxpayers to pay for it. As government spending outpaces economic growth, more resources are redirected from productivity‐​enhancing functions toward government‐​fueled consumption without commensurate increases in the ability of workers to pay for a larger government. Excessive government spending also fuels inflation, depresses growth, and lowers living standards.

Congress’ latest debt deal is woefully inadequate for addressing the drivers of growing spending and debt, primarily putting controls on less than one‐​third of the budget that is already projected to decline further as a share of the economy: discretionary spending.

The Congressional Budget Office’s (CBO) latest long‐​term budget outlook projects that U.S. government spending will consume nearly 30 percent of the economy by 2053. At 29.1 percent of gross domestic product (GDP), federal spending will be 8 percentage points of GDP or almost 40 percent higher than the historical average.

As the figure above illustrates, interest costs are a main driver of spending increases, alongside expansions in major health care and Social Security spending. Other mandatory spending, which includes various welfare programs, retirement benefits for federal employees, and some veterans’ benefits, is projected to decline as a share of GDP. Discretionary spending growth also flattens out in CBO’s assumptions.

Interest costs are projected to triple as a share of the economy, assuming Treasury 10‐​year bonds at 4 percent – below average rates recorded over the past three decades. Interest cost increases are due to higher interest rates and the increasing size of the debt to which they apply. Publicly held debt borrowed in credit markets is projected to almost double from 98 percent of GDP in 2023 to 181 percent of GDP by 2053. The best way to address rising interest costs is to stabilize the debt as a share of the economy, which Congress can accomplish by reducing projected spending by at least 10 percent.

The only major category of federal spending expected to grow faster than interest on the debt is federal health care programs. Major health care programs include Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and subsidies for private insurance purchased on the exchanges created by the Affordable Care Act (ACA). According to CBO, two‐​thirds of the increase in major health care spending will be due to the growth in per‐​person health care costs, meaning fixing the current subsidy, instead of allowing health care spending to grow ever more generous without budget controls, would fix most of the cost growth problem. Only one‐​third of the projected increase in total spending on the major health care programs is due to population aging. Unfortunately, President Biden’s initiatives to lower health care costs will be mostly futile, acting primarily as campaign talking points rather than addressing underlying cost drivers. As Jim Capretta with the American Enterprise Institute argues:

“President Biden’s latest plan to lower health care costs for American households…[is] far too trivial to matter much for most patients. If anything, the net effect is more likely to be an increase in overall costs rather than a reduction.”

The two largest federal programs, Medicare and Social Security, will face a fiscal cliff sometime in the next 10 or so years. CBO’s estimates assume that Medicare and Social Security spending will continue as if the fiscal cliff didn’t exist. Were Congress to let scheduled benefit cuts occur, Medicare providers would face 11 percent payment cuts as soon as 2031 and Social Security beneficiaries could see their benefits reduced by 20 percent as soon as 2033. Given the popularity of both programs, waiting until the 11th hour before the fiscal cliff hits will likely result in legislators adopting a short‐​term band‐​aid approach, such as papering over entitlement deficits with additional borrowing and tax increases, while any benefit reductions could be delayed a decade or longer. U.S. workers have the most to lose from this wait‐​and‐​see approach as they’ll get hit with the double whammy of higher taxes and a slower‐​growing economy.

Following current debates in Congress, legislators have moved on from worrying about passing a budget or addressing the debt to arguing over how much to increase recently agreed upon spending levels on defense and non‐​defense discretionary programs under the guise of emergency needs. Congress should have closed gaping loopholes in the debt limit deal to account and pay for emergency spending if legislators wanted to ensure their agreement held tight.

Unfortunately, raising the debt limit didn’t make the debt issue go away, it merely kicked the can down the road while Americans continue to struggle under the weight of ongoing inflation that’s in no small part driven by excessive government spending. Americans should ask those running for office how they will stop the government from eating up more of the economy. Without public questioning, Congress may just as well try to ignore the debt problem until 2025, when the debt limit suspension comes to an end.

Nicholas Anthony

Senators Cynthia Lummis (R‑WY) and Kirsten Gillibrand (D‑NY) introduced an updated version of their Responsible Financial Innovation Act. The bulk of the bill addresses issues around market structure and cryptocurrency exchanges—issues my colleagues Jack Solowey and Jennifer Schulp have discussed at length. Yet, within the bill also lies an interesting section on combatting illicit finance within the cryptocurrency market.

What makes this section so interesting is that Senators Lummis and Gillibrand appear to have largely adopted this section from a separate bill introduced by Senators Elizabeth Warren (D‑MA) and Roger Marshall (R‑KS). In fact, all four senators just joined hands to introduce this section as a standalone amendment to this year’s National Defense Authorization Act (NDAA). As many might remember, the Warren‐​Marshall bill received a nearly instant wave of criticism from Cato, Coin Center, Bitcoin Policy Institute, Bitcoin Magazine, Filecoin Foundation, and many others when it was first introduced.

Coin Center’s Peter Van Valkenburgh wrote, “The bipartisan Digital Asset Anti‐​Money Laundering Act, introduced today by Sens. Warren and Marshall, is the most direct attack on the personal freedom and privacy of cryptocurrency users and developers we’ve yet seen.” Filecoin’s Marta Belcher wrote, “The bill would also effectively ban privacy‐​enhancing technologies in blockchain networks. The bill is a disaster for digital privacy and civil liberties.”

A cursory look at the bill makes it easy to see why everyone was so concerned. The Warren‐​Marshall bill proposed expanding anti‐​money laundering (AML) and know‐​your‐​customer (KYC) surveillance to self‐​hosted wallets and cryptocurrency ATMs as well as effectively setting a prohibition on the use of cryptocurrency mixers. The bill also proposed having the Treasury, Securities and Exchange Commission (SEC), and Commodity Futures Trading Commission (CFTC) levy new examination and review processes on the companies they oversee. Finally, the bill proposed a requirement for Americans to report to the Financial Crimes Enforcement Network (FinCEN) if they transact more than $10,000 in cryptocurrency if at least one party in the transaction is outside the United States. As Valkenburgh and Belcher said at the time, it was a direct attack on digital privacy and civil liberties.

How the Two Bills Stack Up

The good news is that the new Lummis‐​Gillibrand bill did not copy the Warren‐​Marshall bill entirely. The Lummis‐​Gillibrand bill would not necessarily expand surveillance to self‐​hosted wallets, prohibit the use of cryptocurrency mixers, or force Americans to report cross‐​border transactions over $10,000. The bad news is that the Lummis‐​Gillibrand bill did pick up other pieces of the Warren‐​Marshall bill (see Figure 1).

Like the Warren‐​Marshall bill, the Lummis‐​Gillibrand bill would require cryptocurrency ATMs to “verify the identity of each customer using a valid form of government‐​issued identification or other documentary method, as determined by the Secretary of the Treasury.” The bill would also require owners of cryptocurrency ATMs to report the physical location of ATMs to FinCEN every four months. Targeting ATMs may not be as severe as surveilling self‐​hosted wallets and effectively prohibiting mixers, but it’s important to recognize that requiring cryptocurrency users to have their identities verified is still taking a stance against financial privacy.

The Lummis‐​Gillibrand bill also adopted the Warren‐​Marshall proposal to have the Treasury, SEC, and CFTC create new “risk‐​focused examination and review” processes for the companies they oversee. These examinations would be intended to monitor how companies are complying with anti‐​money laundering requirements. Considering compliance is already estimated to cost financial institutions $46 billion a year in the United States to stop an unknown amount of crime, it’s unclear what exactly this added burden will contribute, especially since the specifics are left for the agencies to determine.

Where the Warren‐​Marshall bill would have prohibited the use of cryptocurrency mixers, the Lummis‐​Gillibrand bill takes a more nuanced approach by instead requiring FinCEN to issue a report to Congress that explains how mixers are used in markets currently and to make recommendations on possible future legislation. This approach is better than the prohibition proposed by the Warren‐​Marshall bill. However, this approach will require watchful eyes on the part of the public. On the one hand, the report could easily give FinCEN another tool to argue for further expanding its authority over financial transactions. On the other hand, the report could result in essentially kicking a prohibition to a later date.

Beyond Warren and Marshall

The Lummis‐​Gillibrand bill also makes a few unique additions of its own outside of what was adopted from the Warren‐​Marshall bill.

Notably, the section on combatting illicit finance opens with an amendment on penalties for cryptocurrency related crimes. By amending 12 U.S.C. Section 1957, the Lummis‐​Gillibrand bill would make it so violations of financial recordkeeping laws (12 U.S.C. Chapter 21) where cryptocurrency is involved can lead to additional punishments with up to $10,000 in fines and up to five years in prison. It’s possible this provision is partly a response to the fall of FTX given it raises the stakes for keeping proper accounting standards.

The Lummis‐​Gillibrand bill would also see to the creation of a working group dedicated to crafting proposals to combat illicit finance. The group would include officials from both law enforcement and regulatory agencies as well as businesses working on cryptocurrency technology, financial institutions, and research organizations. Within this theme, the bill would also require the President to issue a separate, public report. Although exchanging ideas in an open manner is commendable, it’s unfortunate that legislation is required to make that happen. (Though, perhaps that’s more so a commentary on politics at large.)

Continuing the theme of opening new dialogues, the Lummis‐​Gillibrand bill would create an “Innovation Laboratory” within FinCEN. The laboratory would be dedicated to promoting “regulatory dialogue, data sharing between the FinCEN and financial companies, and an assessment of potential changes in law, rules, or policies to facilitate the appropriate supervision.” This idea might sound nice to some, but FinCEN’s history of repeatedly refusing to provide data to prove the effectiveness of anti‐​money laundering surveillance in general makes it hard to have faith in the agency’s ability to live up to what the senators have in mind. One may be comforted because it’s a statutory requirement, but events earlier this year have shown that statutory requirements have still not been enough to get real answers about the effectiveness of anti‐​money laundering requirements.

Finally, although it was not in the section on combatting illicit finance, it’s worth mentioning that the Lummis‐​Gillibrand bill does address self‐​hosted wallets elsewhere in the bill. When discussing risk management, the bill says that the CFTC and the SEC must create standards regarding money laundering, customer identification, and sanctions compliance for exchanges dealing with self‐​hosted wallets. This move is not the same assault levied by the Warren‐​Marshall bill. Yet, at the same time, it is concerning that these rules are being left open for regulators to decide and will require watchful eyes if it comes to fruition.

Conclusion

Taken together, the Lummis‐​Gillibrand approach may not be as concerning as the Warren‐​Marshall bill, but that is not to say it is not concerning at all. Although Senators Warren and Marshall sought to take a leap forward for expanding financial surveillance, Senators Lummis and Gillibrand are still creeping forward by pushing forth these proposals. It’s for that reason that the Lummis‐​Gillibrand and Warren‐​Marshall alliance should be concerning for advocates of privacy and freedom.

It was only a few months ago that Senator Warren was described as “building an anti‐​crypto army.” The fact that her proposals spreading, even in limited form, should give people pause to ask if that army isn’t growing. The new bill is not the full assault from last year, but it also isn’t a retreat.

As debates move forward on both this bill and the recent NDAA amendment, it will be important for the public to keep a watchful eye.

Norbert Michel and Jai Kedia

A few weeks ago, American Compass released Rebuilding American Capitalism, A Handbook for Conservative Policymakers. This Forbes column (American Compass Points To Myths Not Facts) provided a very brief critique of the handbook’s Financialization chapter, and Oren Cass, American Compass’s Executive Director, released a response titled Yes, Financialization Is Real.

This Cato at Liberty post is the fifth in a series that expands on the original criticisms. (The first four in the series are available here, here, here, and here.) This post discusses the one remaining core argument American Compass relies on – income stagnation. It demonstrates that the evidence contradicts American Compass’s income stagnation story.

The idea that Americans’ income has stagnated is central to American Compass’s argument that American capitalism needs to be rebuilt. The foreword in American Compass’s handbook uses this stagnation story as follows:

What has happened to capitalism in America? Businesses still pursue profit, yes, but not in ways that advance the public interest. Over the past 50 years, corporate profits rose by 185%. Wages rose by 1%. [Emphasis added.]

It connects this supposed stagnation to financial markets as follows:

Financialization shifted the economy’s center of gravity from Main Street to Wall Street, fueling an explosion in corporate profits alongside stagnating wages and declining investment. [Emphasis added.]

American Compass’s very reason for existence is to argue that American capitalism no longer flourishes largely because “globalization and financialization” are “undermining the nation’s prosperity.” The alleged evidence is that the typical American worker’s income has been stagnating for decades. The third sentence of Cass’s 2018 book, The Once and Future Worker, laments that “while gross domestic product (GDP) tripled from 1975 to 2015, the median worker’s wages have barely budged.”

This stagnation story, just as American Compass’s claims regarding talent, profit, and investment, does not hold up to scrutiny. The empirical evidence undercuts American Compass’s stated reason for existing. To be clear: It is true that America has many economic problems. In fact, Cato scholars regularly discuss countless ways to fix many of these problems. Unfortunately for American Compass, though, a broad stagnation (or decline) in Americans’ income is not a problem.

The opening lines of Cass’s book (reproduced above) provide an excellent starting point for this discussion. While it is very easy to verify something like GDP growth for any given period, it is not so straightforward to evaluate “the median worker’s wages” because the median worker can be defined in any number of ways. The term could reference, for example, someone who earns the median wage of all U.S. employees, the median wage of all private employees, or the median wage of all production and nonsupervisory employees (excluding managerial staff). Arguably, the term should exclude all part‐​time workers or all workers under the age of 16. There simply is no single way to define the median (or typical) worker.

This basic problem is magnified by multiple definitions of income, including total compensation (wages plus fringe benefits, such as health insurance) and household income (both before and after taxes and transfers). Separately, for any given measure of income, adjusting for inflation with different price indices results in large disparities in real income growth over long periods of time. And, of course, choosing different time periods from within the overall length of a series can easily produce a deceptively low (or high) growth rate. These problems are all further complicated because the “typical” household from distant decades is no longer the typical American household – aside from multiple other demographic changes, more household income is now typically spread over fewer family members.

It is straightforward to use Cass’s example to illustrate some of these points. For instance, using the Consumer Price Index (CPI) to adjust average hourly earnings of production and nonsupervisory employees suggests that real wages have grown less than 1 percent from 1975 to 2015, consistent with Cass’s statement. However, adjusting the same earnings data with the Personal Consumption Expenditures (PCE) index indicates that real wages grew 22 percent – obviously not stagnant.

Interestingly, using either a longer or shorter timeframe provides a very different growth figure than Cass’s 1975 to 2015 period. For example, examining the same income series from 1964 – the first year the data is available from the Bureau of Labor Statistics (BLS) – to 2015, while adjusting for inflation with the CPI, shows that real wages grew almost 9 percent from 1964 to 2015. Using the PCE shows that real wages grew a bit more than 39 percent from 1964 to 2015. Separately, using the CPI to examine the same income series from 1991 to 2015 (both 1975 and 1991 mark the end of a recession) shows that income grew almost 15 percent. Using the PCE to adjust for inflation suggests that income grew 27 percent for this period.

As Figure 1 demonstrates, “income growth” is highly influenced by the chosen inflation metric and the starting point for the period of analysis. Figure 1 plots the growth rate in real income – average hourly earnings of production and nonsupervisory employees – with the rate calculated using every year from 1964 to 2000, respectively, as the starting point, and 2015 as the ending year. It shows the analysis using both the CPI and PCE to convert nominal wages to real. (Real adjustments made using the PCE, the Fed’s preferred price measure, always result in a higher growth rate.) Using 1975 as the starting point for this analysis, for CPI adjusted income, produces the lowest possible (positive) growth rate.

Using only this method – the one Cass uses – while ignoring all the others gives the false impression that real income was stagnant.

Similar issues arise using the Census Bureau’s household income figures, but even the basic data, as reported, contradicts the stagnation story. For instance, without making any adjustments for changes in demographics, Census reports that real median household income increased 34.18 percent from 1967 to 2018.[1] That’s hardly stagnant.

Still, because the number of people in each household declined 23 percent from 1967 to 2018 (from 3.3 individuals to an all‐​time low of 2.53),[2] the Census income distribution figures understate how well individuals have been doing. Larger household incomes are now divided among fewer people, so adjusting for only this change in household size shows that real median household income increased 74 percent, from $14,355 in 1967 to $24,972 in 2018.[3] That’s more than double the increase shown in the unadjusted data, far from stagnant.

While many journalists have let go of the income stagnation story, others have (even if unintentionally) fueled the false narrative. Take, for instance, an article in The Atlantic that discussed the U.S. Census Bureau’s 2018 report Income and Poverty in the United States. The author noted:

Around 13 percent of households made more than $150,000 last year; a decade ago, by comparison, 8.5 percent did. While that’s something to cheer, without a solid middle class, it’s not indicative of an economy that is healthy and stable more broadly.

At best, the author is guilty of a major understatement.

The 2018 Census report shows that more than 5 million households – not individuals, but families – moved into the high‐​earning category. That shift is undoubtedly something to cheer, but the author still implies that these numbers support a “disappearing middle class” narrative. As Mark Perry from the American Enterprise Institute confirms, the very same Census report shows that the share of households earning between $35,000 and $100,000 fell from more than 53 percent in 1967 to 42 percent in 2018, and that the share of households earning more than $100,000 essentially tripled, from less than 10 percent in 1967 to more than 30 percent in 2018. Moreover, while The Atlantic article largely ignores it, the share of households earning less than $35,000 fell, from approximately 36 percent in 1967 to less than 28 percent in 2018.

Together, these statistics show a broad increase in prosperity. In fact, this increase is even more impressive considering that the number of American households essentially doubled from 1970 to 2018. For anyone interested in additional evidence that typical Americans – and even, in many cases, lower income Americans – have been earning higher and higher incomes during the last several decades, here are a few references:

William Cline, U.S. Median Household Income Has Risen More Than You Think
Richard V. Burkhauser, Jeff Larrimore, and Kosali I. Simon, A “Second Opinion” On The Economic Health Of The American Middle Class
Salim Furth, Stagnant Wages: What the Data Show
Michael Strain, The Myth of Income Stagnation
Scott Winship, Stagnationists Are Simply Wrong and What You Need to Know from the New CBO Income Figures
Gerald Auten and David Splinter, Income Inequality in the United States: Using Tax Data to Measure Long‐​Term Trends
Thomas Hirschl and Mark Rank, The Life Course Dynamics of Affluence
Scott Lincicome, The American Wealth Machine and Its Misguided Discontents and The Annoying Persistence of the Income Stagnation Myth
John Early, The Myth of American Income Inequality

In 2020, perhaps after recognizing that the basic income stagnation story does not hold up, American Compass began releasing its Cost‐​of‐​Thriving Index (COTI) to provide “a better way to understand the challenge for working families.” According to Cass, his COTI is better than looking at inflation‐​adjusted (real) income:

Economists rely on inflation‐​based adjustments to compare costs of living over time, but this method measures the cost of buying the same set of things in different eras. Perhaps a family could more easily afford a 1985 quality of life in 2015 than in 1985, but being in the middle class in 2015 means affording a 2015 quality of life.

While it is true that price indices are imperfect, and they tend to make older incomes look larger than they really were, Cass’s description of inflation‐​based adjustments over time is highly flawed. Adjusting nominal income to “real” income essentially converts the dollar amount to a quantity, such that it indicates how much “stuff” someone can buy. And both the CPI and the PCE account for (as best as possible) the different quality of goods and services available to people over time, as well how people may buy different products (substitute), including those that they were previously unable to purchase.

Setting this flaw aside, American Compass uses its COTI to argue that living standards have declined, supposedly explaining why “America’s working families” are correct to “feel that they have come under increasing economic pressure.” However, as the American Enterprise Institute’s Scott Winship and Jeremy Horpedahl have documented, American Compass’s COTI methodology is just as flawed as its understanding of inflation‐​based adjustments.

In their new paper, Winship and Horpedahl demonstrate that the American Compass COTI decline is the direct result of its design choices. Specifically, American Compass’s COTI ignores taxes and transfers (which tend to boost lower earners’ incomes), excludes full‐​time workers younger than 25 years old, and excludes full‐​time female workers. American Compass’s COTI also includes a very narrow range of goods and services, defining food, transportation, housing, health care, and higher education as “needs,” yet leaving purchases of clothing, home furnishings, utilities, and communications technology out of the COTI.

American Compass’s COTI methodology is consistent with its propensity for selectively choosing data to give the appearance of supporting evidence for its claims. Thus, Winship and Horpedahl reach a reasonable conclusion regarding American Compass’s COTI report:

Against these data, Cass asks us to believe that, in truth, living standards are down by 36 percent. We have shown that this claim bears no relationship to reality.

…

While Cass’s claims are out of line with all plausible estimates by serious researchers, they align neatly with his organization’s view that American capitalism requires “rebuilding.”

It is also worth mentioning that American Compass’s COTI conflicts with other research that uses separate alternative measures of well‐​being that do not depend on inflation‐​adjusted income metrics. For instance, Bruce Sacerdote’s 2017 National Bureau of Economic Research (NBER) paper reports that consumption for two‐​person households with below median income increased as much as 164 percent from 1960 to 2015. The paper points out that spending on food and clothing grew slower than the growth in total consumption during this period, and that this falling share of total consumption for food and clothing is consistent with real income growth being higher than income‐​based measures suggest.

Another consumption‐​based measure of well‐​being is the number of work hours needed to purchase the same goods at two different points in time. Researchers can use this metric to gauge whether, for example, real income stagnated from 1975 to 2015. If the amount of time someone would need to work to buy the same bundle of consumer goods in 1975 is no different than it is in 2015, then real income has stagnated. On the other hand, if the required work time to purchase the same bundle has fallen, then the evidence suggests that real income has increased. Using a sample of 400 consumer products, George Mason’s Don Boudreaux reports that only one good–men’s work boots–costs more in work time in 2019 than in 1975. (In Myths Of Rich And Poor: Why We’re Better Off Than We Think, Michael Cox and Richard Alm use the same method and report similar results.)

The Simon Project, an endeavor of the Cato Institute’s Human​Progress​.org, formalizes these ideas by creating an index based on the time price (how long someone must work to acquire a good) of 50 basic commodities. Their index shows that the average time price of these 50 commodities fell more than 72 percent between 1980 and 2018. In practical terms, this figure means that if it took one hour of work to buy a commodity – such as sugar, coffee, pork, or lumber – in 1980, it took only about 17 minutes of work to buy that same commodity in 2018. Put differently, if it took one hour of work to buy an item in 1980, that same hour of work would buy almost four units of the same good in 2018.

This Cato post has demonstrated that American Compass’s bleak income stagnation story is a false narrative. American Compass selectively chooses its preferred time periods and economic measures so it appears as if the evidence supports its story. Moreover, as previous posts in this series established, American Compass displays this same propensity to selectively pick terms and dates that appear to support its “financialization” narrative. In all these cases, though, the evidence contradicts American Compass’s claims.